Notes, summaries, assignments, exams, and problems for Economy

Financial Institutions

Retail Banks: issuing shares or bonds-receiving deposits

Building societies: arranging mergers

Insurance companies: offering life insurance-providing pensions

Investment Banks: arranging or fighting takeover bids- arranging mortgages- giving financial advice to companies

Financial Terms

• Mortgage: is a loan to buy property
• Deposit: money you put in the bank
• Pension: money paid to retired person
• Stocks or Shares: securities representing part ownership of a company
• Capital: money invested in a business
• Bonds: are interest paying securities issues by companies that need to borrow money
• Takeover: company gains control of another one by buying its stocks
• Merger: two formerly separate companies join together

Legal and Financial Terms

• Conglomerates:

Balance of Payments (BoP)

Y = C + I + G + EX – IM = C + I + G + CA

When production > domestic expenditure = exports > imports = current account > 0 (surplus) and the trade balance is positive.

CA = S – I. If Savings < Investment: current account deficit (IM > EX)

Components of BoP

Current Account

The current account tracks flows of goods and services (imports & exports), income receipts (e.g., interests earned), and net unilateral transfers (gifts, remittances).

Financial Account

The financial account tracks flows of financial assets (shares, stocks) and foreign direct investment (FDI). It represents the difference between sales of domestic assets to foreigners and purchases of foreign assets by domestic citizens.

• Inflow (+):

Investment & Trading

Key Concepts

Collateral: Assets a borrower uses to secure or guarantee a loan.

Shares: Certificates representing part ownership of a company.

Institutional Investors: Financial organizations that own a lot of shares.

Day Traders: People who buy and resell shares in a very short time, often just a few hours.

Raise Capital: To get money from investors with which to run a business.

Issue: To offer securities for sale to financial institutions and the public.

Market Dynamics

Bid-Offer Spread (Bulls & Bears): The difference between the buying (bid) and selling (offer) price of shares. Bulls are investors who buy shares expecting prices to rise, while bears sell shares anticipating price drops.

Market Makers: Traders who buy and... Continue reading "Finance Essentials: A Glossary of Key Terms" »

The role of price in the marketing mix

When pricing a product, a business needs to choose one that fits with the rest of the elements in the marketing mix

Price determination in a free market

People think that prices are determined by the seller of the product, but that is not quite so. Prices are driven by market forces called demand and supply.

Demand

Demand is not only that people want to buy a product, but that they want it and are willing to pay for it. Prices can affect how much demand there is for a product. Normally, if the price goes up, demand goes down, and vice versa.

Supply

Supply also varies with price. However, it is different. If the price goes up, then the owners would want to be supplied with more products to take advantage of the... Continue reading "Understanding Price Determination in Marketing" »

The Boston Consulting Group Approach

The Boston Consulting Group (BCG) growth-share matrix is a portfolio-planning method that evaluates a company's strategic business units (SBUs) in terms of market growth rate and relative market share. The SBUs are classified as follows:

Stars

High-growth, high-share businesses or products. They often need heavy investment to finance their rapid growth. Eventually, their growth will slow down, and they will turn into cash cows.

Cash Cows

Low-growth, high-share businesses or products. These are established and successful SBUs that need less investment to hold their market share. They produce a lot of cash that the company uses to pay its bills and support other SBUs that need investment.

Question Marks

Low-share

Topic 1: The Marketing Function

What is Marketing?

Marketing is the process of identifying, understanding, and meeting customer and societal needs by creating, communicating, delivering, and exchanging value.

Key Concepts:

• Need: A basic requirement for survival (e.g., food, shelter).
• Want: A specific desire for a product or service that can satisfy a need.
• Demand: Wants backed by the ability and willingness to pay.
• Product: Any tradable offering that satisfies a need, including tangible goods, services, ideas, and experiences.
• Market: All potential buyers who share a need or desire and have the ability to exchange value.
• Consumer Insight: A non-obvious understanding about customers that can change their behavior for mutual benefit.

Evolution of Marketing

1. Product

Factors Affecting Supply

Costs in Supplying Goods to the Market

• Price of raw materials
• Wage rates

Improvements in Technology

Makes it cheaper to produce goods.

Taxes and Subsidies

Higher taxes mean higher costs.

Climate (for Agricultural Products)

Supply of crops depends on weather.

Impact of Supply on Market Price and Sales

If supply falls, the market price will rise, sales will fall, and the supply curve will shift to the left. If supply rises, the market price will fall, sales will rise, and the supply curve will shift to the right.

Elasticity of Supply

Elasticity of supply measures how easily and quickly supply can change when prices change. This depends on how quickly products can be produced and supplied, which is often slow for agricultural products.... Continue reading "Supply, Demand, and Pricing Strategies in Business" »

Market expansion strategies (concentration-specialization and spreading-flexibility)

Motivation for internationalizing: Proactive and Reactive:

• Reactive: market-competitive environment-political environment-economic environment-chance occurrence-extra inventory-exporting.
• Proactive: expanding sales-launch an offensive-power & prestige, lower costs of labor-less stringent rules-extend life of a product.

Rules of entry mode: Naive-Pragmatic – strategy.

Entry modes: Exporting-Contractual- Investment.

• Exporting: Types:
  • Direct (ad: control foreign markets-good info feedback-better protection of trademarks. Dis: higher start-up costs-high investment-info requirements)
  • Indirect (ad: fast market access-Little commitment-export management is outsourced.

Capacity Planning Considerations

Capacity can be stated in terms of inputs or outputs. Planning capacity too low results in unmet demand, while planning it too high results in higher costs.

Facility Considerations

Facility: Permanent, semi-permanent, or temporary commercial or industrial property such as a building, plant, or structure, built, established, or installed for the performance of one or more specific activities or functions. When deciding where to produce (Facility), important factors to consider:

• Proximity to market
• Availability of raw materials, transportation, power, and labor
• Climatic influences and community characteristics
• Taxes and inducements

Facility Layouts

1. Fixed-Position Layout

A layout that brings all resources required to... Continue reading "Optimizing Capacity, Facility Layouts, and Supply Chain Management" »

Potential Drawbacks of Revenue Management

While revenue management offers significant advantages for businesses, certain practices can lead to customer dissatisfaction. Hotels, in particular, should avoid the following:

• Offering insufficient benefits in exchange for restrictions.
• Imposing overly severe restrictions on discounts.
• Not informing customers of changes in the reference transaction.

Insufficient Benefits for Restrictions

First, if hotels do not offer sufficient incentives to customers in exchange for imposing restrictions, customers are likely to view the practice as unacceptable. For example, in this study, respondents did not view a free breakfast or a room upgrade as an acceptable trade-off for cancellation penalties.

Overly Severe Discount